Outperformers: High-growth emerging economies and the companies that propel
them PART II
While
growth-and-development economists over the decades have extensively documented
policies that have driven growth in emerging economies, the contribution to the
growth of globally competitive, nimbly managed, and highly productive companies
has been less studied. In the 18 outperforming countries, we find that these
companies not only helped boost GDP but that they also are catalysts for change
at home.
We define large
companies here as public companies with annual revenues of at least $500
million. From 1995 to 2016, their revenue relative to GDP has almost tripled in
outperformer developing economies—growing from the equivalent of 22 percent of
GDP to 64 percent, close to levels in high-income economies and dwarfing levels
in other developing economies. At the same time, we estimate that the
contribution of value added by these outperformer companies to national GDP
also grew rapidly, from 11 percent in 1995 to 27 percent in 2016—or double the
share among non-outperforming emerging economies .
Large companies tend to
focus on sectors that tap into global demand, which has helped drive a greater
share of exports for the outperforming economies. They bring productivity
benefits by investing in assets, R&D, and job training at a higher rate
than small and midsize enterprises (SMEs)—and they tend to pay higher wages, upward
of 75 percent more in countries such as Indonesia and South Korea. Along with
these direct effects, large companies indirectly stimulate the creation,
growth, and productivity of SMEs in their supply chains—and in turn depend on
these SMEs to provide intermediate input for their ecosystem.
Rising to the top in
the outperforming emerging economies—and then staying there—is by no means a
foregone conclusion for large companies. Our analysis finds that the
competitive dynamics in many (but not all) of the 18 outperforming countries
can be brutal, with only the strongest surviving.
One indication of the
competitive corporate environment is that outperforming countries have about
twice as many big companies per trillion dollars of GDP as other emerging economies:
just over 160 companies per $1 trillion in 2016 versus 80 companies in
non-outperforming peers (and 95 in high-income countries). As a result, revenue
growth is shared more widely.
Contested leadership is
a vital sign of the competitive environment. Less than half (45 percent) of
companies that reached the top quintile with respect to economic profit
generation between 2001 and 2005 managed to stay in place for a decade,
according to our analysis. That was far less than incumbents in high-income economies,
62 percent of which stayed in the top quintile for the same decade.
Domestic competition,
in turn, has enabled the winners to earn a disproportionate share of revenue
and income and to outperform their counterparts in advanced economies across
key dimensions, including total returns to shareholders. For companies in
high-income countries, the developing world has thus become both an opportunity
for growth and the source of tough new global competition.
The rewards for the
successful companies that stay on top are substantial: the top 10 percent of
large companies with respect to value creation, in the outperforming emerging
countries, captured 454 percent of the net economic profits generated by all
companies. That is more than four times the proportion in high-income
countries, where the top 10 percent captures only 106 percent of all net
economic profit. But the penalties for failure are larger, too: the bottom 10
percent of companies in outperformer emerging economies accrues losses
equivalent to 289 percent of the total, compared with 31 percent of the
respective profit pool for top large companies in advanced economies.
The emerging-market
companies that survive this rite of passage emerge as hardened and formidable
competitors on the global stage. They cover a wide range of sectors, with
significant differences depending on the structure of national economies.
Between 1995 and 2016,
large, publicly listed companies in the outperforming countries grew their net
income each year four to five percentage points faster than those in other
emerging economies. On a global level, they contributed about 40 percent of the
revenue and net income growth of all large public companies from 2005 to 2016,
even though they accounted for only about 25 percent of total revenue and net
income in 2016. More than 120 of these companies have joined the Fortune Global
500 list since 2000.
The best-performing
companies also outdid companies in advanced economies on a key performance
indicator: total returns to shareholders. Between 2014 and 2016, total returns
to shareholders from the top quartile of outperformer companies was 23 percent
on average, compared with 15 percent for top-quartile companies in high-income
countries and 13 percent in non-outperformer emerging economies.
To understand the
contribution of these big companies more fully, we surveyed executives from
more than 2,000 companies across seven countries and ten industries. Three
characteristics stand out:
Top companies in
emerging economies devote more attention to innovation, deriving 56 percent of
their revenue from new products and services, eight percentage points more than
their peers in advanced economies. They invest almost twice as much as
comparable businesses in advanced economies, measured as a ratio of capital
spending to depreciation. They are also faster in assigning resources: on
average, they make important investment decisions six to eight weeks faster
than similar companies in advanced economies. That amounts to about 30 to 40
percent less time.
Finally, the most
successful large companies in emerging economies are 27 percentage points more
likely than their peers in high-income countries to prioritize growth outside
their home markets—and in doing so, have become powerful global competitors.
The Thai conglomerate
Charoen Pokphand Group is one example. Focused on agribusiness, real estate,
retail, and telecommunications, CP Group was the first foreign investor in
China´s first special economic zone in Shenzhen in 1981; today, its Chinese
businesses account for about 40 percent of its annual sales of $45 billion.
CONTINUES IN PART III
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